When will HUTCHMED (00013) break the "200 billion valuation curse" after the disclosure of commercialized varieties being withdrawn from the market in the annual report?

On March 5, HUTCHMED (00013) disclosed its 2025 annual report performance, with the company's current shareholders' net profit increasing by 1111.03% year-on-year, showing impressive performance. Subsequently, institutions such as Dahua Jixian, Merrill Lynch Securities, and Lyon updated their research, but after various "buy" and "outperform market" ratings, many institutions chose to lower HUTCHMED's target price in the Hong Kong and US stock markets. Dahua Jixian lowered HUTCHMED's Hong Kong stock target price from the previous 32.5 Hong Kong dollars to 26 Hong Kong dollars, while Merrill Lynch Securities reduced its US stock target price from 22 US dollars to 21 US dollars. In the secondary market, HUTCHMED's Hong Kong stock price saw a significant increase the day after the annual report was disclosed. Observing that, stimulated by an 11-fold increase in net profit reported in the annual report, on March 6, HUTCHMED's Hong Kong stock price rose significantly within the first hour of trading, reaching a maximum increase of 10.16% to 23.20 Hong Kong dollars, but later the price continued to fall and eventually closed with a 5.32% increase. On Monday, March 9, when the Hong Kong stock market opened, influenced by the market's volatility, HUTCHMED's stock price saw a sharp decline early in the morning, with the largest decline reaching 2.98%. However, it quickly rebounded, fluctuating slightly around the waterline, and compared to the Hang Seng Health Care Index, which was underwater all day and showing a maximum decline of over 5%, the annual report's support for HUTCHMED in the short term was still quite evident. Can innovative drugs support valuation? According to the financial report, of HUTCHMED's current net profit of $457 million, $416 million came from the sale of 45% equity in Shanghai Hanhe Pharmaceuticals. At the beginning of last year, HUTCHMED announced its intention to sell 35% of its equity in Shanghai Hanhe Pharmaceuticals to Jinpu Investment, with a total transaction amount of RMB 3.483 billion, and to sell 10% of its equity to Shanghai Pharmaceuticals Holding for a total transaction amount of RMB 995 million, for a total amount of RMB 4.478 billion ($608 million). After the transaction was completed, HUTCHMED holds only 5% equity in Shanghai Hanhe Pharmaceuticals. This transaction directly drove HUTCHMED to achieve a net profit of $455 million in the 2025 interim report, an increase of 16.6 times year-on-year. This is also the key reason for the company's net profit soaring 11 times in the annual report. However, after the financial report was disclosed, HUTCHMED's Hong Kong stock price trend after the 2025 interim report and the stock price trend after this annual report showed significant differences. On August 8 last year, the day after HUTCHMED's 2025 interim report was disclosed, the company's stock price experienced a cliff-like decline, and it "flying low" all day, eventually falling sharply by 15.99%, with a record-high trading volume of 70.287 million shares, and the corresponding turnover rate also increased significantly from the previous day's 0.69% to 8.06%, indicating a clear internal division in the market and significant market panic. In comparison, HUTCHMED's Hong Kong stock price showed a certain increase after the annual report was disclosed this time, and remained stable during market volatility, demonstrating significant resilience. The different stock price performances before and after may be related to HUTCHMED's innovative drug business trend. After cashing in on the traditional Chinese medicine business, innovative drugs need to support HUTCHMED's future growth, which has become a market consensus. In the first half of last year, the company's domestic sales of the three main drugs all declined, perhaps one of the reasons for the market's temporary panic after the interim report at that time. In the first half of last year, the revenue of the company's three main drugs, Elunate (fruquintinib), Sulanda (savolitinib), and Orpathys (savolitinib), fell to $43 million (a 29% decrease year-on-year), $12.7 million (a 50% decrease year-on-year), and $15.2 million (a 41% decrease year-on-year), respectively. The 2025 annual report shows that the company's core tumor/immunity business revenue was $286 million, a 21% decrease year-on-year. The market sales of the company's three core products in China decreased in 2025, but the overall decline was slightly smaller than in the first half of last year. Regarding overseas business, driven by its partner Takeda, the overseas sales of Fruquintinib in the first half of last year reached $163 million, a 25% year-on-year increase, and in the 2025 annual report, Fruquintinib's overseas sales reached $366 million, a 26% year-on-year increase, and have been approved in 38 countries. In fact, compared to the decline in revenue caused by domestic market saturation, the market was more concerned after the interim report in the first half of last year that the overseas sales growth of Fruquintinib and other products did not meet expectations. Because, driven by Takeda, in the second half of 2024, Fruquintinib had begun commercialization in key regions outside the United States, such as Japan and Europe. Compared to the European Union, Japan is still a local battlefield for Takeda, so after the preparatory stage in 24Q3, the market had high expectations for its growth in 2025. Looking at the sales data for the first and second half of 2025, Fruquintinib's sales showed steady growth, meeting the market's previous expectations. When will the valuation have room to rise? Looking back at HUTCHMED's stock price trends in the past two years, investors can easily see that, with a maximum stock price fluctuation of nearly 70%, the closing price of 22.12 Hong Kong dollars on March 9 this year was only 1.9% different from the closing price on December 31, 2024. In other words, HUTCHMED has been trapped in the valuation range of around 19-20 billion Hong Kong dollars for the past two years. Behind the continued downturn in the stock price may lie in the "lack of new catalysts" in the core valuation logic of the company, i.e., the existing positive news of Fruquintinib's overseas expansion has been digested, and the previously promoted new growth point of the ATTC platform business has not yet materialized. As for the emerging pipeline, on September 10 last year, HUTCHMED's clinical trial application for the injectable HMPL-A251 was accepted by the NMPA; on October 31, HUTCHMED introduced HMPL-A251 as a key product at its research and development day event. It can be seen that when there is a lack of catalysts for the core commercial products, HUTCHMED is shifting market attention to its combination therapy drugs. It is understood that HMPL-A251 is the first candidate drug under HUTCHMED's ATTC platform, combining selective PI3K/PIKK inhibition with precise HER2 targeted therapy to leverage the synergistic effect between HER2 targeted therapy and PAM pathway inhibition, breaking through the limitations of traditional cytotoxic antibody-drug conjugates and single PAM inhibitors. In terms of pipeline progress, since October last year, two months after the preclinical data of HMPL-A251 was disclosed, the global Phase I/IIa clinical trial of the drug has started simultaneously in China and the United States; in March this year, HUTCHMED's second ATTC drug, HMPL-A580 (targeting EGFR), has also entered the clinical stage, and the third drug, HMPL-A830, is planned to start Phase I clinical trials before the end of this year. Both in terms of the number and speed of pipeline products, this reflects HUTCHMED's focus on the ATTC platform. However, it cannot be denied that the early-stage ATTC drugs have very limited catalytic effects on the company's current stock price. At the same time, the withdrawal of existing products may be a negative factor affecting HUTCHMED's valuation. It was learned that on March 9, after market close, Epizyme announced the voluntary withdrawal of all indications for the anti-cancer drug Tazemetostat worldwide. As a heavyweight product for which HUTCHMED once invested heavily to secure rights in the Greater China region, the withdrawal of Tazemetostat undoubtedly affects the layout of HUTCHMED's innovative drug pipeline in China. After market close on March 9, HUTCHMED announced that it would initiate the withdrawal and recall of Tazemetostat and take measures such as locking the inventory to suspend all sales and shipments. It is worth mentioning that in the announcement, HUTCHMED mentioned that this withdrawal would not affect the company's financial guidance, and pointed out that the sales of the drug in 2025 were $2.5 million. However, in fact, as early as 2021, HUTCHMED obtained the development and commercialization rights for Tazemetostat in the Greater China region for an initial payment of $25 million and a total milestone payment of $285 million. Four years later, the drug was approved for marketing in mainland China on March 18 last year and was included in the commercial insurance innovative drug catalog in December. That is to say, Tazemetostat almost faltered at the starting point of commercialization in China. Against this backdrop, as of 2026, when one-time assets can no longer replenish profits, how HUTCHMED relies on its existing innovative drug business to open up valuation growth space may become the key factor for investors to decide whether to "bet" next.